How Did Levi's Manage Its Comeback?
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How Did Levi's Manage Its Comeback?

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A report about how Levi's was able to turn around its business after a little over a decade losing market share.

A report about how Levi's was able to turn around its business after a little over a decade losing market share.

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How Did Levi's Manage Its Comeback? How Did Levi's Manage Its Comeback? Document Transcript

  • HOW DID LEVI’S MANAGE ITS COMEBACK? AN ANALYSIS OF HOW A STRUGGLING COMPANY REVIVED ITSELF Prepared for Melanie Wise Prepared by Anna Sandgren July 29, 2010
  • CONTENTSMEMORANDUM ............................................................................................................. 3INTRODUCTION ............................................................................................................ 6REASONS WHY LEVI’S LOST MARKET SHARE................................................... 7Failure to Meet Fashion and Consumer Trends ......................................................................................... 7New Entrants into the Jeans Market............................................................................................................ 8LEVI’S COMEBACK .................................................................................................... 10A Revamped Business Strategy .................................................................................................................. 10Repositioning ................................................................................................................................................ 11CONCLUSIONS AND RECOMMENDATIONS........................................................ 13REFERENCES................................................................................................................ 15 Page 2 of 16
  • MEMORANDUMTO: Melanie WiseFROM: Anna SandgrenDATE: July 29, 2010SUBJECT: How Did Levi’s Manage Its Comeback? An Analysis of How a Struggling Company Revived ItselfHere is the report I wrote about how Levi’s was able to turn around its business after alittle over a decade of losing market shares.Levi’s is a well-known organization and they enjoyed great triumphs in the last century,especially from the 1960s to mid 1990s. Maybe the company was doing a little bit toowell, and they took their success for granted. Levi’s lacked innovation and stuck to whatthey knew, which morphed into offering few product lines that also were out of style. Bynot being up-to-date, Levi’s lost sales when they missed and failed to forecast trends inthe 1990s. Young people associated Levi’s as a baby boomer brand and turned theirbacks on the organization. By having a small range of product lines, Levi’s also failed tomeet the needs of different market segments. As new rivals entered the market,consumers could choose from designer jeans to more affordable jeans at retail stores. Page 3 of 16
  • In order to turn things around, Levi’s widened their product range and created moreproduct lines. Different lines could be bought from different distributors; premium jeansat high-end specialty chains and a less expensive line at retails stores. By doing this,Levi’s expanded their availability and could reach more consumers and different marketsegments. To prevent from being looked upon as a brand for old people, Levi’s putincreased effort into repositioning themselves in order to appeal to younger consumers.Part of the repositioning was to be seen as a trendy brand and follow what was in style,not only when it came to fashion, but also trends in society. To communicate withyounger consumers, Levi’s now uses mobile shopping technology and social mediaoutlets such as Facebook and Twitter.It’s amazing to look back at the history of Levi’s and see how they reinventedthemselves. In order to not risk repeating the less successful times in the company’shistory, Levi’s needs to constantly come up with new ideas on how to deliver value toconsumers, while remaining socially and fashionably relevant. I recommend thefollowing: • Strategic alliances and licensing. By collaborating with other companies in other industries, Levi’s could enter new product categories and expand beyong clothes. • Fast Fashion. By speeding up design processes Levi’s could create the absolute latest in fashion trends, which translates into loyal and happier customers. • Customization. Now that Levi’s is doing better, the Personal Pair program could be relaunched and would probably be very successful in an era where customers Page 4 of 16
  • (especially Millenials) are looking for more individuality from their clothing purchases.I am glad I had the opportunity to write this report. I have gained a lot of insight into notonly an exciting company like Levi’s and their comeback, but also into the fascinatingjeans industry as a whole. Page 5 of 16
  • INTRODUCTIONThe business world is littered with stories of successful companies losing their way andsuccumbing to failure. Every so often, among these stories of impending failure, therecomes along a fascinating story about an organization that is able to turn itself around andnot only succeed, but thrive. Levi’s, one of America’s oldest and most esteemed brands,is just this type of success story. According to the essay “A Short History of Denim” byLynn Downey, entrepreneur Levi Strauss and tailor Jacob Davis started to make copperriveted waist overalls in 1873, which they sold to gold miners during the California GoldRush (3). These waist overalls later became better known as “jeans” and by 1960 theywere worn by most of America’s youth and the Levi’s 501 became an American classic(6). Levi Strauss & Co. achieved great success for more than a century, but the businesstook a different turn in the late 20th century. As stated by Vauda Aich in her case LevisStrauss in the US (Part B): The Great Turnaround Plan, Levi’s “steadily [began] losingmarket share in the US [in] 1996.” Levi’s would experience this negative trend for a littlemore than a decade, and it was not until April 2007 that the Los Angeles Times wouldreport that “[the company’s] fiscal first-quarter profit rose 61%, providing the latest signthat the long-suffering jeans maker [was] finally on the mend.”This report will analyze how a company on the brink of failure was able to get back on itsfeet after years of struggling to once again become a fashionable and profitable brand.The report explains what led to Levi’s downfall and what they did to revamp themselves.Recommendations to maintain and grow a successful brand are also provided. Page 6 of 16
  • In preparing this report, several articles and reports have been analyzed and evaluated.Information was gained from well-known sources such as Bloomberg Businessweek,Time, and Levi’s corporate website. The readings also include an analysis of the jeansindustry, which is incorporated into the report. REASONS WHY LEVI’S LOST MARKET SHAREAfter experiencing more than a century of positive sales trends and market growth, Levi’sbegan to lose market share in 1996.There were several reasons that set off the downwardtrend which lasted for more than a decade, including a lack of innovation, failure toanticipate consumer trends and an influx of fashion forward competitors willing to dowhat Levi’s either couldn’t or wouldn’t. Failure to Meet Fashion and Consumer TrendsIn his book Consumer Behavior, Michael Solomon states that in 1993 Levi’s was rankedthe most stylish brand in the world (222) and ironically, just three years later, consumersstarted to abandon the company in droves. One of the main reasons for consumerabandonment seems to be that Levi’s began to be perceived as no longer being stylishand having lost touch with what consumers wanted. As mentioned in Stacy Perman’sTime magazine article, “Levi’s Gets the Blues,” Levi’s failed to respond to trends in the90s such as the wide-leg pant. It seems that Levi’s thought they could ride the wave of Page 7 of 16
  • their success from earlier decades, instead of focusing on innovational strength in order tokeep consumers loyal to their brand.In her Bloomberg Businessweek article, “Why Levi’s Still Looks Faded,” Louise Leewrites that many women turned their back on Levi’s because they felt the company didnot have any jeans models “that quite fit women’s curves,” because Levi’s created“women’s jeans from men’s patterns.” This is clear evidence that another area thatbecame a detriment to Levi’s was their lack of cutting edge designers.Interestingly, it could be that Levi’s longevity as a brand actually contributed to some ofits problems. It seems that the fact that Levi’s was such a thriving brand from the 1950suntil the mid 1990s, caused teens and young adults in the late 1990s and 2000s toassociate the brand with their parents, which translated into a reason for them to not buytheir jeans. Ellen Neuborne reports for Bloomberg BusinessWeek that Generation Y didnot see Levi’s as a very hip brand, and recognized it as a brand that their parents, thebaby boomers, would buy.It is clear that Levi’s took their earlier success for granted and lost touch with the needsof their consumers and market trends. When they did not have what consumers asked forthey lost their loyalty and in turn market share. New Entrants into the Jeans MarketIn the 1990s the jeans market changed dramatically and Levi’s faced strongercompetition than it had in the past. The new entrants into the market were two types:high-end designer jeans manufacturers and retail chains (Perman). The designer jeans Page 8 of 16
  • came from fashion houses such as “Donna Karan, Tommy Hilfiger, Ralph Lauren andVersace” and other “edgy upstarts.” These style-conscious rivals stole sales from Levi’sand had stylish jeans models that followed—and sometimes even set—fashion trends;something that Levi’s jeans and models did not. Many consumers were willing to pay apremium price to obtain a pair of these much hipper jeans.Around the same time period, retail stores like Gap Inc., J.C. Penney and Sears startedoffering affordable jeans, cheaper than Levi’s, which attracted the younger populationand chipped away at even more of Levi’s share of the jeans market.Levi’s was confronted by competition from two different directions and they were stuckin the middle between their new rivals—rivals who went after niche customer segmentsand were able to earn profits from them. As a result, both fashion and price consciousconsumers abandoned the Levi’s brand. Page 9 of 16
  • LEVI’S COMEBACKLevi’s failed to meet consumers’ demands in the 1990s and the business overhaul tomake up for this lack of customer focus took them a decade to accomplish. They chosecertain ways to get back on track again, which included introducing additional productlines to reach more market segments and making their products more available byimproving their distribution channels. Levi’s also repositioned their brand so thatconsumers would see them as trendy and up-to-date, something that had been sorelymissing for decades. A Revamped Business StrategyAs Levi’s faced increasing competition from designer brands and retail stores they finallydecided to counter their rivals by providing Levi’s products at select discounters andspecialty chains (Lee). Levi’s approach to turn the tide of lost market share and consumerloyalty was to develop new product lines to be distributed in different types of stores. In2003, the company launched their new Signature line, which Levi’s website describes asa brand that “offers high-quality, fashionable jeans at affordable prices to value-consciousconsumers at [discount] stores like Walmart, Target and Kmart.” According to JennyStrasburg’s article in The San Francisco Chronicle, titled “Levis treats itself to an imagemakeover / Once-workaday jeans to challenge designer lines,” Levi’s also made theirway into high-end specialty chains such as “Saks Fifth Avenue, Neiman Marcus,Bloomingdales and Nordstrom ” with their premium product lines. Page 10 of 16
  • More than offering their jeans at discount and specialty stores, Levi’s also tried to makethemselves more attractive to younger consumers by making their jeans available atPacific Sunwear of California Inc. and other stores frequented by younger shoppers(Lee).An important, and risky, move in Levi’s reinvention was to become more obtainable andoffer something to different market segments. Rather than worry about the risk ofthinning out the brand by spreading themselves too thin, Levi’s saw the benefit ofdiversifying their products to engage with customers who had varying needs andexpectations. Creating a line for selected retail stores was a bold move because Levi’scould have tarnished their brand in the minds of consumers and degraded their legacy ofgood quality. The same could have happened with regard to more upscale stores hadpatrons of those establishments perceived Levi’s jeans as lacking sophistication. YetLevi’s understood that if executed well, they could expand their range of product lines,increase their availability, and by doing so be seen as consumer focused and as a resultbecome profitable once again. RepositioningAfter seeing sales decrease in the 1990s and 2000s due to their failure to respond tomarket trends, Levi’s also chose to reposition themselves. They began to be seen as beingout of style and out of touch with current trends. In order to prevent further loss of marketshare and counter these perceptions, Levi’s took the innovative step of “ship[ing] instaffers from its more fashion-oriented European division and [holding] brainstormingsessions to suss out what [consumers wanted] in their clothes” (Lee). As a result, the new Page 11 of 16
  • product lines were in vogue and Levi’s enjoyed a triumph with new, trendier productssuch as their low-rise jeans. The company became better at responding to trends and onceagain gained popularity among younger consumers. Levi’s also became better at teasingout trends, not just in the apparel industry, but in society. As pointed out in the onlinearticle “Dressed to impress?” at CMDGlobal.com, Levi’s created the Eco jean, “madewith organically farmed cotton” that responded well to the environmental movementtaking place in our society in the last decade.Levi’s also uses technology to connect and communicate with younger consumers.Products have been designed to meet their needs, e.g. some models have pockets foriPods, and Levi’s also interacts with their younger customers through the web(CMDGlobal.com). As stated in Sara Inés Calderón’s article “Levi’s Uses New FacebookPlugins to Reach Potential Jeans Purchasers” in Inside Network, “Levi’s […] was one ofthe first web sites to debut Facebook’s new social plugins [in April of 2010].” Whenasked why Levi’s was one of the first companies asked by Facebook to integrate with thenew plugins, Megan O’Connor, Levi’s director of digital and social marketing, explainedthat “Facebook […] approached us because they knew we had a reputation as being apioneer not just in the social space, but also with technology.”Levi’s managed to lure consumers back by positioning themselves as a brand that is up todate; not only when it comes to their products, but also when it came to grasping trends insociety such as social and environmental movements and technology. Page 12 of 16
  • CONCLUSIONS AND RECOMMENDATIONSAfter a little more than a decade of losing consumers, Levi’s was eventually able to getback on their feet and in early 2007 the company could announce that profits were finallyincreasing again. After being successful most of the 20th century Levi’s had some darkyears at the end of the century and what led them there was their inability to anticipate oreven meet fashion trends as well as the entrance of rivals into the jeans market. Levi’scould not offer stylish jeans models and the consumers abandoned them for theircompetitors. By making some bold moves and utilizing smart business strategies Levi’swas able to turn itself around and is today no longer thought of as a baby boomer brandand has gained popularity among younger consumers. Levi’s effectively developed moreproduct lines and increased their availability to meet the needs of more market segments.In order to interact with and maintain an ongoing relationship with their young buyers,the organization makes huge efforts to remain technologically up-to-date and responsiveto societal trends.Levi’s has hopefully learned their lesson to not take success for granted. Upholding arelationship with consumers and keeping them loyal to their brand is a continuous taskand Levi’s needs to be innovative and create new ways to maintain these relationships.Different ways to do so could be: 1. Strategic alliances and licensing. Levi’s has often teamed up with different organizations to give back to society, e.g. the White Knot and Goodwill, but could take it further and join forces with other parties to create more Levi’s products than just clothes. Levi’s logo could be seen on products such as Page 13 of 16
  • furniture and home accessories such as sheets, blankets etc. Since Levi’s sponsors music festivals, camping gear could also be part of their product range.2. Fast Fashion. Levi’s could meet trends faster and enjoy higher consumer satisfaction by speeding up the process of spotting trends, manufacturing and distribution. Similar to Zara, Levi’s could engage in “Fast Fashion” and would develop products quicker and have them in stores more rapidly.3. Customization. Levi’s offered the Personal Pair program to consumers from 1994 to 2003. People got measured at Original Levi’s stores and could a few weeks later enjoy their own customized jeans. Levi’s decided to discontinue the program to put efforts into restrengthening the brand. Now that Levi’s has improved their brand, the program could be relaunched. Page 14 of 16
  • REFERENCESAich, Vauda. “Levis Strauss in the US (Part B): The Great Turnaround Plan.” IBS Case Development Centre 2006. http://www.ibscdc.org/Case_Studies/Strategy/Restructuring%20Turnaround%20S trategies/RTS0112B.htm>.Calderón, Sara I. “Levi’s Uses New Facebook Plugins to Reach Potential Jeans Purchasers”, Inside Network 27 Apr, 2010. 23 Jul, 2010. <http://www.insidefacebook.com/2010/04/27/levi%E2%80%99s-uses-new- facebook-plugins-to-reach-potential-jeans-purchasers/>.Downey, Lynn. “A Short History of Denim.” Levi Strauss & Co 2007. <http://www.levistrauss.com/sites/default/files/librarydocument/2010/4/History- Denim.pdf>.“Dressed to impress?” CMDGlobal.com 20 October, 2007. <http://www.cmdglobal.com/analysis/brand_experts/levis>.Lee, Louise. “Why Levi’s Still Looks Faded,” Bloomberg Businessweek 22 Jul, 2002. 23 Jul, 2010. http://www.businessweek.com/magazine/content/02_29/b3792068.htm>.“Levi Strauss earnings rise 61% in 1st quarter” Los Angeles Times 11 April, 2007. <http://articles.latimes.com/2007/apr/11/business/fi-levi11>.Neuborne, Ellen. “Generation Y,” Bloomberg Businessweek 15 Feb, 1999. 23 Jul, 2010. <http://www.businessweek.com/1999/99_07/b3616001.htm>.Perman, Stacy. “Levi’s Gets the Blues,” Time 17 Nov, 1997. 23 Jul, 2010. Page 15 of 16
  • <http://www.time.com/time/magazine/article/0,9171,987368-1,00.html>.“Signature.” Levi Strauss & Co. <http://www.levistrauss.com/brands/signature-by-levi- strauss>.Solomon, Michael. R. Consumer Behavior. Upper Saddle River: Pearson, 2009. 222. Strasburg, Jenny. “Levis treats itself to an image makeover / Once-workaday jeans to challenge designer lines”, The Chronicle 15 Aug, 2002. 23 Jul, 2010. <http://articles.sfgate.com/2002-08-15/business/17556016_1_levi-strauss- neiman-marcus-saks>. Page 16 of 16